KUALA LUMPUR: Hua Yang Bhd’s nine-month performance came above analyst expectations at 133 per cent due to stronger-than-expected property billings and associate contribution, said Kenanga Investment Bank Bhd (Kenanga IB).
“Its nine-month 2019 core net profit of RM8.7 million came above both our and consensus estimates, at 133 per cent each of full-year estimates,” the analyst said.
“The positive deviation came mainly from stronger-than-expected property billings and stronger contribution from its associate Magna Prima Bhd.
Kenanga IB said Hua Yang’s property sales of RM239.7 million also came in higher than its 2019 estimated sales target at 96 per cent, of which Astetica Residences project made up about 37 per cent of the sales.
“We are upgrading 2019-2020 estimates by 68 to 71 per cent after assuming higher sales and stronger associate contribution,” the analyst said in a note today.
Kenanga IB upgraded Hua Yang to “outperform” but maintained the target price at 41 sen.
It said Hua Yang’s core net profit increased by close to four times to RM8.7 million during the nine month. This was driven by better billings from its on-going projects and sales from its completed units, which saw inventories falling by 29 per cent, positive contribution from Magna Prima of RM3.7 million, and lower effective tax rate at 43 per cent.
The previously high effective tax rate was due to the nondeductible tax expense arising from borrowings Hua Yang took to acquire Magna stake last year.
“Quarter-on-quarter, its third quarter 2019 core net profit was higher by 204 per cent mainly from improvement in EBITDA margin to 15 per cent, likely from recognition of better margin products and lower operating costs, lower net interest expense, stronger contribution from its associate, and lower effective tax rate at 28 per cent from the same reason above.”
Despite the challenging operating landscape in the property sector, Kenanga IB thinks that Hua Yang was on the right path given its continuous effort in clearing inventories as shown by the 29 per cent drop in inventories from completed projects.
“Moreover, we are also comforted by the group’s commitment to lower its net gearing as shown by the recent disposal of 30 per cent stake in Kajang Heights Land for RM21 million completed in October 2018 that saw net gearing now at 0.70 times.
“We expect to see more aggressive efforts to reduce gearing with FY19-20E net gearing estimated at 0.69-0.67 times. Unbilled sales currently stand at RM217.3 million, providing slightly less than one year of earnings visibility,” it added.